Q:  What assets do chapter 7 bankruptcy trustees typically collect from chapter 7 debtors and liquidate to pay creditors?

A:  Chapter 7 bankruptcy trustees can collect and liquidate non-exempt assets.  The chapter 7 trustee then uses these funds to pay a portion of the debt owed to the debtor's creditors.  The most common assets that a chapter 7 bankruptcy trustee in Nevada collects include the following:

• Tax refund(s) owed but not received and spent by the debtor prior to filing bankruptcy. 
• Pre-petition portion of a tax refund for the year in which the bankruptcy was filed.
• 25% of any funds in the debtor's bank account on the date of filing (if traceable to wages).
• 25% of the debtor's earned but unpaid wages as of the date of the bankruptcy filing.
• Rents received after filing from rental real property.
• Cash on hand (whether in your wallet/purse/safe deposit box, under your mattress, etc.)
• Vacant land and/or timeshares

If you are filing for chapter 7 bankruptcy, you should carefully select the date of the bankruptcy filing.  Making your case less attractive to the trustee through careful planning is my primary objective, and should be yours too!  

If you are expecting a tax refund but have not yet received and spent the tax refund, you probably should wait to file for bankruptcy.  The chapter 7 trustee will collect the entire tax refund and use it to pay your creditors.  This also applies to debtors filing for bankruptcy late in a tax year because the trustee is also able to collect the pre-petition portion (portion due to pre-filing wages) of debtors' tax refunds.   

*Disclaimer:  Every case is different, and results vary.  Consult a competent bankruptcy attorney to determine if/what assets are at risk and if the bankruptcy filing should be postponed temporarily.                                                                                

Q: Am I required to have all my financial records including credit card statements, bank account statements, bills, paycheck stubs, and tax returns before filing for bankruptcy?

A: No. However, it is strongly recommended because the Bankruptcy Code requires strict compliance with certain document deadlines. Failure to comply with the deadlines could result in the dismissal of your case. Furthermore, these documents are necessary for the proper preparation of the bankruptcy petition. Please note that by signing the bankruptcy petition, you are attesting under penalty of perjury to the completeness and accuracy of the information contained in the petition. Thus, the more information you provide the more complete and accurate your petition will be.

For these reasons, most attorneys will insist on the debtor’s production of various documents prior to filing the bankruptcy case. These documents include but are not limited to:

• Pay invoices for all income earned within the six months prior to filing;
• Two most recent federal and state income tax returns (or four prior years for a chapter 13);
• Account statements for all financial accounts covering the six full months prior to filing;
• Statement of the debtor’s assets and monthly expenses; 
• Photo identification and social security card;
• Most recent statements from all creditors; 
• Divorce decree if divorced within the last three years; and 
• Credit report**.

*If you don’t have copies of your income tax returns, you may request transcripts of the returns through the Internal Revenue Service by calling 1-800-829-1040. If you retain legal counsel, he/she can request transcripts on your behalf but will need to provide the proper authorization forms to the IRS.

**Most attorneys will pull a credit report on your behalf and will compare the listed debts against the most recent statements from all your creditors to ensure that all debts are listed within your bankruptcy petition.

Q: Must I disclose everything I own (assets) and everything I owe (liabilities) on the bankruptcy petition?

A: Absolutely yes. Pursuant to the Bankruptcy Code, debtors must list all assets and liabilities.

Failure to disclose all assets and liabilities could result in the dismissal of the case and the inability to discharge one’s debts in subsequent cases. Failure to disclose assets could also result in criminal prosecution by the Federal Bureau of Investigation, U.S. Attorney, or Department of Justice for bankruptcy fraud and/or perjury. Failure to disclose assets may prevent the exemption of undisclosed property at a later time, even if an exemption applies. Please note that the trustee, Office of the United States Trustee, and creditors have many resources to investigate and verify your assets. These asset tracking resources are both impressive and frightening.

The debtor’s assets become property of the estate. Property of the estate includes:

(a) property, real or personal, that the debtor has any ownership interest in, which includes:

          (1) present interests

              -Examples: co-signed vehicle, bank account, life insurance, etc.

          (2) future interests (only if entitled to within 180 days of the filing) -

                -Examples:  beneficiary benefit of life insurance, inheritance, or property settlement

          (3) contingent interests 

              -Example: entitlement to money if some condition is satisfied

(b) community property interests

Q: May I file separately from my spouse?

A: Yes, however, the spouse’s income may be used in the means test calculation to determine if the presumption of abuse arises and the debtor’s ability to repay his/her creditors under a Chapter 13 plan. If the debtor is separated (by legal separation or merely living separately) from the spouse, the spouse’s income will not be considered in the means test calculation if the debtor files the required declaration under 11 U.S.C. §707(b)(7)(B).

Furthermore, your spouse’s assets must be disclosed on your bankruptcy petition unless the assets were obtained prior to the marriage.  

Q: What is the Automatic Stay?

A: The automatic stay bars most creditors’ collection efforts whether made directly, by mail, or by phone. The automatic stay provision is found within 11 U.S.C. §362. It governs the imposition of the stay as soon as the bankruptcy petition is filed with the appropriate court and governs the lifting of the stay upon the issuance of the discharge order, case closure, or by order of the court.

The stay may not operate or may be limited if the individual was a debtor under any chapter pending during the previous year. The stay also does not operate in certain circumstances including but not limited to the following:

*Collection of domestic support obligations (11 U.S.C. §362 (b)(2));

*Setoff of a prior tax liability from a pre-petition tax refund (11 U.S.C. §362 (b)(26));

*Divorce proceedings except for the division of property (11 U.S.C. §362 (b)(2));

*Criminal proceedings (11 U.S.C. §362 (b)(1));

*The withholding of wages pursuant to an agreement authorizing the withholding for the benefit of a pension, profit-sharing, stock, bonus, or other approved plan for the repayment of a loan against such plan (11 U.S.C. §362 (b)(19));

*Eviction proceedings if the landlord received a judgment of possession (11 U.S.C. §362 (b)(22)); and

*Eviction proceeding if the landlord certifies that an eviction proceeding for the endangerment of such property or the illegal use of controlled substances on such property has been commenced or that the debtor as tenant committed such endangerment or allowed the illegal use of controlled substances on the property within the 30 days prior to the certification (11 U.S.C. §362 (b)(23)).

In summary, the automatic stay can stop repossessions, foreclosures, garnishments, levies, and other collection efforts but restrictions may apply on a case-by-case basis. 

Q: If I am past due on my child support or alimony obligations, will it be more difficult for me to file for bankruptcy?  

A: Yes. Some difficulties are set forth below.

1. Under 11 U.S.C. §522(c), all real and personal property of a debtor who has a domestic support obligation (DSO) is considered non-exempt and is subject to liquidation by the trustee. Whether the trustee enforces this provision is an entirely different matter.

2. A debtor with a domestic support obligation must disclose the name and address of the DSO claimant.

3. Within a chapter 13 case, a debtor with a DSO must provide the trustee with a signed affidavit that the debtor is current on all post-petition child support before the case will be discharged. 

4. The domestic support arrears can be paid within a Chapter 13 plan. Please note that domestic support obligations are non-dischargeable debts under 11 U.S.C. §523. Thus, any arrears not paid through a chapter 13 plan would still be owed to the DSO claimant.   

Q: If I file for relief under Chapter 13, can the plan be modified after confirmation of the plan?

A: Yes. Under 11 U.S.C. §1329, the Chapter 13 plan can be modified after confirmation. Therefore, it is possible that the plan payments might be reduced if you experience a change in your financial situation. Such changes may include a reduction in employment or an increase in your monthly expenses such as health insurance costs or additional food, clothing, and supplies expense in the event of the birth of a child.

Please note that the trustee and creditors have the ability to seek such modification as well. If your income increases substantially, your plan payments could increase. These types of modifications, however, are rare events.

If you have experienced a change in circumstances since the filing of the chapter 13 case, you may be eligible to convert to a chapter 7 liquidation. If, for instance, you filed a chapter 13 case in order to save your home by paying the mortgage arrears through the plan, but are no longer able to afford your home and the arrears payments, you may be eligible to convert to chapter 7 relief. If you have experienced a reduction in employment since filing, you may also be eligible to convert to chapter 7.

Q: What are some benefits of filing for bankruptcy relief?

A: Filing for bankruptcy has emotional, psychological, and financial benefits. 

Scenario One:  Before filing for bankruptcy, you may be hounded by creditors day and night. You are not alone. The never-ending flood of collection notices, demands, and settlement offers are a constant reminder of your problems. You live day in and day out knowing that the debts are due and that you only have so much to live on. Some collectors will call your friends and family members hoping to embarrass you into repaying the debt. You may in turn desperately resort to any means of getting the money to silence the creditor. On the other hand, maybe you cannot get the money, and the creditor serves you with a lawsuit. After getting a judgment (court order) against you, the creditor presents a wage garnishment to your employer. In addition to garnishing 25% of your wages leaving you without rent money or short on your mortgage payment, now your employer knows that you have financial problems. And it gets worse, the creditor garnishes your bank account and leaves you penniless until next payday.

However, upon filing for bankruptcy, the seemingly relentless harassment and pursuit by creditors comes to an abrupt halt. The phone calls stop. The bills stop coming. That wage garnishment stops. Your bank account cannot be garnished anymore. You can finally stop running. You breathe a sigh of relief. About four months after filing, the court issues you a discharge. Your creditors are silenced, and you finally have closure.

Scenario Two: Before filing for bankruptcy, your credit was ruined. Your credit report listed one delinquency account after another. These delinquencies and your credit score held you hostage. You could not get more credit because you were a huge credit risk. The debt just kept mounting with no escape in sight.

After filing for bankruptcy, you have the ability to rebuild your credit. You should start as soon as the bankruptcy case is filed. Rebuilding your credit will require you to use your credit wisely and selectively. Just as the delivery of bills and collection notices cease upon the bankruptcy filing, lenders will begin sending you credit card offers and vehicle finance offers.

The bankruptcy gives you a clean slate. By filing for bankruptcy, you actually decrease the credit risk perceived by lenders. That’s because lenders know that you cannot file for bankruptcy relief for another eight years. If you default on a loan after filing for bankruptcy, lenders know that they can pursue collection against you for eight years.

So, you are now back in control and can concentrate on your future instead of worrying about your past.

Q: Is the meeting of creditors the only investigation undertaken to analyze my financial affairs?

A: No, not necessarily. Debtors in bankruptcy may be subject to an additional audit, known as the Debtor Audit. This audit is conducted by the Attorney General in accordance with 28 U.S.C. §586. According to the law, approximately one out of every 250 cases will be selected for audit. A notice will be sent to you if your case is selected. The notice will detail all information that you are required to provide to the independent auditor. The purpose of the audit is to ensure that you provided complete and accurate information within your bankruptcy. The auditor will examine the disclosed information with various financial documents that you have to provide.

Additionally, your creditors, trustee, or the Office of the United States Trustee may ask the court for approval to conduct a more formal hearing, known as a Rule 2004 Debtor Examination. This hearing is similar to a deposition. It is recorded and generally will be transcribed. The Debtor Examination is often an exhaustive examination and thus is a lengthy proceeding. 

Q: What is the difference between the Office of the United States Trustee and the chapter 7 panel trustee?

A: The Office of the United States Trustee (UST) and the chapter 7 panel trustee assigned to your case have various differences. Employees of the UST are public employees and thus paid by the United States government. Chapter 7 trustees are private business people operating as sole proprietors. The chapter 7 panel trustee is hired by and supervised by the UST. Chapter 7 trustees, however, are not paid by the UST. The chapter 7 panel trustee generates income from two sources. The chapter 7 trustee earns $60.00 for every No-Asset case plus any commissions earned on non-exempt assets collected in bankruptcy cases.

The Office of the United States Trustee and the chapter 7 panel trustee assigned to your case perform different functions. They may work cooperatively in certain matters but the Office of the United States Trustee operates under its own guidelines set by national and regional policy. The UST investigates and prosecutes criminal matters such as bankruptcy fraud.

The chapter 7 trustee reviews your bankruptcy schedules against your financial records. The trustee is looking for consistency and to ensure that you have fully disclosed information relating to your past and future financial conditions, assets, and liabilities.

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